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OPEC Closes In on Making Biggest Cuts in Decades

THE WALL STREET JOURNAL

Saudi Oil Minister Calls for Group to Reduce Production by Two Million Barrels a Day as Global Demand Wanes

ORAN, Algeria — Saudi Arabia opened the door for OPEC’s most dramatic output reduction since the 1970s, calling for the group to slash world oil supplies by at least another two million barrels a day to keep abreast of faltering demand.

Saudi Oil Minister Ali Naimi, arriving for a summit here of the Organization of Petroleum Exporting Countries, said a cut of that size was the only way for OPEC, which supplies more than 40% of the world’s oil, “to bring things into balance.”

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Ali Al-Naimi, Saudi Arabia’s oil minister, arrives at his hotel prior to an OPEC meeting in Oran, Algeria.

Ali Al-Naimi, Saudi Arabia's oil minister, pauses while speaking to journalists as he arrives at his hotel prior to an OPEC meeting in Oran, Algeria.

Ali Al-Naimi, Saudi Arabia's oil minister, pauses while speaking to journalists as he arrives at his hotel prior to an OPEC meeting in Oran, Algeria.

Combined with an earlier reduction, the cuts would total nearly four million barrels a day in four months — the cartel’s largest yet in such a short time. But implementing another round of deep cuts could prove difficult for OPEC, which is already feeling the financial squeeze from falling prices and diminished oil exports.

Traders on the New York Mercantile Exchange seemed unimpressed by the Saudi show of resolve. The price of U.S. benchmark crude for January delivery, already down more than 70% from its record high this summer, fell 2%, or 91 cents, to $43.60.

OPEC has trimmed output by around 1.7 million barrels a day since August, when oil prices began to plummet on the heels of the global financial crisis and sharply weaker energy demand. Together, the cuts would represent 4.3% of current world demand of 85.8 million barrels a day.

As always, much of the burden of another cut would fall on Saudi Arabia, the world’s largest oil exporter. Mr. Naimi, normally tight-lipped in advance of big OPEC summits, clearly wanted to send a signal to the oil market that Saudi Arabia was serious about curtailing excess supply and buttressing prices. But his announcement came on a day when the U.S. released another round of grim economic data, including a steep drop in housing starts, illustrating how difficult it will be for the cartel to impress a market captivated by pessimistic economic tidings on all sides.

OPEC, which meets officially on Wednesday, is eager to win support for production cuts among big non-OPEC producers such as Russia and Azerbaijan, both of which have sent delegations to this week’s summit.

Russian officials are expected to show solidarity with OPEC, but the country’s oil fields are already declining amid limited investment and aging infrastructure. Few analysts believe Moscow will offer cuts beyond the 300,000 barrels a day Russia is expected to lose in pumping capacity next year.

Arriving at the airport, Russia’s top energy official, Deputy Prime Minister Igor Sechin, said Russia last month cut its output by 1.5 million tons. A monthly cut of that size would be the equivalent of around 300,000 barrels a day. Mr. Sechin said later that Russia would be willing to cut further if market conditions warranted. OPEC officials say they are looking for non-OPEC countries, possibly including Kazakhstan, to offer cuts of up to 600,000 barrels a day.

Saudi Arabia, OPEC’s de facto leader, has cut production by 1.2 million barrels a day since August and is now producing 8.5 million barrels a day, Mr. Naimi said. OPEC’s other 11 members had reduced output by a total of 500,000 barrels a day since August, he said.

Demand has gone so slack that many oil traders, as well as big oil companies such Royal Dutch Shell PLC and BP PLC, are simply stashing supply in supertankers. The amount of oil in floating storage off Texas, West Africa, Iran and other big producing regions has more than doubled in the last two months to at least 40 million barrels, oil analysts say. OPEC’s challenge now will be to cut swiftly enough to soak up excess supply and perhaps drive prices back above $50 or $60 a barrel.

—Hassan Hafidh contributed to this article.Write to Neil King Jr. at [email protected] and Spencer Swartz at[email protected]

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